For many homeowners, the end of the year brings two things: good memories and a tightened budget. Between travel, gifts, holiday parties, and regular expenses that somehow feel bigger in December, it’s common to head into the new year wanting a bit more financial breathing room.
If that sounds familiar, the equity in your home may be one way to regroup. Homeownership gives you more than a roof over your head — it also helps build financial strength over time. And that equity can be used to help you cover home repairs, or rebuild your savings after a busy holiday season.
Two paths most homeowners look at are a home equity loan1 and a cash-out refinance2. Both give you access to a lump sum of funds, but they work very differently. Understanding the difference can help you decide which approach fits the way you manage money and your long-term plans.
Your Home Equity: A Quick Refresher
Home equity is the difference between what your home is worth and what you still owe on your mortgage. If you’ve owned your home for a while, consistently made payments, or seen property values rise in your area, you’ve likely built up more equity than you realize.
That equity can be used carefully and intentionally — especially when you want to reset your budget after a heavier-than-usual spending season.
Home Equity Loan: A Straightforward Lump Sum
A home equity loan works like taking out a second mortgage. You borrow a specific amount of money based on the equity in your home, and you repay it with a separate monthly payment.
How a Home Equity Loan Works
- You keep your existing mortgage exactly as it is.
- You receive one lump sum of cash up front you can use however you want.
- You repay the loan in fixed monthly payments, usually at a fixed interest rate.
Why Homeowners Like This Option
A home equity loan tends to appeal to people who prefer structure. You know the amount you’re borrowing, the interest rate, and the monthly payment — and none of it fluctuates. It’s useful when you need a clear, defined amount for a specific purpose, whether that’s updating part of your home, consolidating holiday debt, or rebuilding your savings cushion.
Cash-Out Refinance: Replace Your Mortgage and Access Your Equity
A cash-out refinance replaces your current mortgage with a brand-new one. The new mortgage will be higher than your existing balance, and you receive the difference as a lump sum of cash.
How a Cash-Out Refinance Works
- Your current mortgage is paid off and replaced with a new one.
- You receive the equity you’re taking out as cash at closing.
- You make one monthly payment — just like you do today, but for the new loan.
Why Homeowners Consider This Option
Some homeowners prefer the simplicity of having just one loan. Others use a cash-out refinance as an opportunity to update their mortgage terms. If your current interest rate is higher than what’s available today, or if you want to adjust your loan structure, this option may be worth considering.
Which Option Fits Your Financial Goals?
Both choices can give your budget a much-needed boost after the holiday season. The best fit depends on how you prefer to manage your mortgage and how you plan to use the funds.
It may help to consider:
- Do you want to keep your current interest rate?
- Would having two separate payments bother you, or not at all?
- Do you know the exact amount you need?
- Would updating your mortgage terms benefit you in the long run?
A home equity loan offers predictability. A cash-out refinance offers the chance to reset your mortgage while accessing equity. Both can help you create more financial room after the holidays; they simply take different routes to get there.
If you’re not sure which direction makes the most sense, a quick conversation can help you sort through the details before making a decision.
1All credit decisions for brokered products are made by a third party. Restrictions and limitations apply. All loans are subject to credit approval. Rates and fees are subject to change.
2All loans are subject to credit approval and meeting eligibility requirements. Restrictions apply. Must meet minimum equity requirements. By refinancing an existing loan, the payments and total finance charges may be higher over the life of the loan.
